Does anyone seriously doubt that, if America had the same national referendum system that Switzerland does, voters in the United States would vote just as aggressively as the Swiss have to curb CEO abuses?
Actually, the 68 percent support for Sunday’s Swiss referendum that gives shareholders broad new powers to curb excessive pay for bankers and corporate executives might well be shy of the mark that the US could hit.
Polls of American voters have regularly shown that over 70 percent favor restrictions on executive compensation, with even self-identified conservatives registering majority support for clamping down on CEOs.
And rightly so. It is not jealousy that motivates concerns about CEO pay. As the AFL-CIO’s Executive Paywatch campaign notes, when CEO pay rises so too does income inequality. In 2010, as the United States emerged from the depths of the Bush recession, a study by University of California economist Emmanuel Saez found that the top 1 percent of Americans captured 93 percent of the growth in income.
Worse yet, CEOs use their money to game the system so that they get richer while the great mass of Americans are squeezed. More than 120 CEOs are currently supporting billionaire Pete Peterson’s “Fix the Debt” campaign, which is chaired by Erskine Bowles and Alan Simpson. A deficit-reduction plan proposed by Bowles and Simpson last month would slash cost-of-living increases for Social Security recipients while at the same time reducing the top marginal tax rate for corporations and the wealthy.
In Switzerland, anger at “golden handshake” and “golden parachute” deals for executives who ran corporations poorly and seemed to be more concerned for their own good than for the long-term economic prosperity of their country, led by small businessman and parliamentarian Thomas Minder to mount a populist campaign to increase the authority of shareholders to regulate errant CEOs.
As in the United States, that’s the sort of proposal that gets a lot of talk but that was not likely to go far in the corridors of political power in Switzerland. Luckily, Switzerland has a long history of allowing citizens to initiate and implement legislative changes. Under Swiss law, any issue can be put to a national referendum if supporters of a vote attain 100,000 petition signatures seeking the test. In recent years, the Swiss have voted on people’s initiatives to guarantee “six weeks of vacation for everyone,” to put an “end to the limitless construction of second homes” that crowd Alpine villages, to expand the ability of tax-supported building society savings to finance energy saving and environmental measures, and to require money gained from maintaining casinos be used for the public interest.
Minder, who has been campaigning for years to address excessive pay for executives he refers to as “losers of the century” and “studs in pinstripes,” was elected to the Swiss Senate as an independent (who has since sided with conservatives on some issues and the Greens on others) in 2011. He agitated on the inside of government for moves to empower shareholders, but quickly turned to the referendum route. Condemned as a “loner” and criticized for being uncompromising, Minder went up against the political and economic establishment in Switzerland, a country that has long been a haven for multinational corporations and banks. His “Minder Initiative” drew aggressive opposition from prominent business and political leaders. But it made sense to voters, especially as Minder explained: “I never said that my goal was the reduction of salaries. I just want shareholders to take responsibility for the levels of remuneration. If the shareholders want to waste company money by paying exorbitant amounts, that’s their problem.”
At the very least, the sweeping victory for reform in Switzerland has sent a signal. One of the leading newspapers in the banking center of Zurich, Tages-Anzeiger, observed Monday morning that the decision was “a vote in favour of decency and fair salaries.” The vote “does not above all express envy,” the newspaper’s editorial continued, “but a feeling that company managers have been ransacking the coffers at the expenses of society.”
The Minder Initiative serves as an important model for US discussions about increasing shareholder rights. And that discussion can and should go well beyond the question of CEO pay.
In 2010, the US Supreme Court’s Citizens United ruling removed barriers to unlimited corporate spending on US political campaigns. At the same time, highly compensated CEOs are among the biggest direct donors not just to individual campaigns but to so-called “Super PACs” that flood the airwaves with negative advertising.
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The Citizens United ruling will ultimately need to be addressed either by a reversal of the court’s decision or by a constitutional amendment. But of the immediate fixes that have been proposed, one of the best is the suggestion that shareholders be given the right to vote on corporate political expenditures. Britain has such a law. But the United States does not. As a result, notes the Brennan Center, the “Citizens United decision opened a loophole in which one group of Americans—shareholders in publicly traded companies—must routinely support political goals that they may reject. Under Citizens United, corporations can spend directly from their treasuries to influence elections. When shareholders’ invested money is spent on politics, millions of Americans are stuck unknowingly contributing to political causes they may not themselves support.”
In 2011, Congressman Michael Capuano (D-MA) introduced an American Shareholder Protection Act to empower shareholders to vote on whether to allow CEOs and corporate boards to spend company money on political campaigns. “Shareholders—not the CEO and not the board of directors—are the real owners of any publicly traded corporation, and the decision should be theirs,” argued Public Citizen in campaigning for the measure, which attracted forty-nine co-sponsorsf
Public Citizen has also led the campaign to get the Obama administration to crackdown on federal contractors that use corporate money—from accounts padded with taxpayer dollars—to fund campaigns. Which raises an interesting question: Could the president issue an executive order giving shareholders of companies that contract with the government the authority to decide whether those firms should play politics with corporate money?
The Swiss vote for the Minder Initiative is drawing a lot of attention in the United States.
That’s good. Hopefully, it will lead to greater pressure for reducing excessive CEO pay.
But it is essential to recognize that simply regulating CEOs is not enough.
Shareholders should be empowered in the US, as they have been in Switzerland. “The shareholders are the owners of the company,” explains Julie Goodridge, CEO of NorthStar Asset Management of Boston, a socially active investment firm. “They need to be voting on these kinds of contributions.”
As Public Citizen notes, “Anyone with a 401(k) invested in stocks or mutual funds—nearly half of all households today—has a stake in how the corporate money in those funds is spent. Passage of a Shareholder Protection Act would help the public hold corporations accountable for their political behavior.”
And, make no mistake, if the United States had a national referendum model like Switzerland, we would not have to wait for Congress to act. The voters would pass a Shareholder Protection Act. And probably by a wider margin than Switzerland’s 68 percent.